Gadsden Court Case Threatens Survival of Family Business

Often times successful family business owners grow accustomed to making all the right decisions and ignore issues they view as unimportant, like professional estate planning.

However, business owners who think prenuptial agreements or other standalone agreements may be an adequate approach to ensuring family business succession should think again.

A case before Judge David Frank in Gadsden County serves as an example of how an agreement – in place and unquestioned for over 15 years – is being challenged after one of the parties has died.

The outcome of the case threatens the viability of a 50-year-old family business.

The situation involves a business owner who was retired, no longer involved in the operations of the business run by his children and who chose to marry at the age of 67.

Court records indicate that a prenuptial agreement was executed to protect the family business and to ensure assets – accumulated previous to the marriage – remained a part of the ongoing operations.

The agreement was signed by both parties, notarized and the record indicates the surviving party stated the relationship was “not about the money.”

Now those sentiments have changed, and the validity of the agreement is being questioned based on the court’s interpretation of events that led to the agreement’s execution.

Obviously, one party has no chance to rebut the various allegations related to the signing of the agreement.

After the initial hearing, Judge Frank ruled the agreement void. The order stated, “the Court concludes that respondent has shown that her execution of the prenuptial agreement was not “voluntary.” It was directed by the decedent under circumstances which provided respondent no opportunity to negotiate any terms and no practical alternative but to sign.”

A motion for rehearing filed by the decedent’s estate, argued the court’s decision was “based on the erroneous determination that the Respondent was coerced into signing by the Decedent. While on first blush this matter ap- pears to be a strictly personal matter, the trial court’s failure to enforce a validly executed contract entered into by an admittedly competent adult based upon her biased and uncorroborated testimony will destroy an established local business with scores of employees and disrupt two generations of the family.”

Judge Frank granted a rehearing.

After the rehearing, Judge Frank did not move forward with a final order, rather he directed the parties to negotiate a settlement.

However, since the rehearing there are indications that the business is struggling due to the uncertainty surrounding the court case. Ongoing operations are impacted due to the company’s inability to secure bid and performance bonds. In addition, the current operator of the business is facing liability issues if the case drags on much longer. The situation reveals the limits of contracts in today’s litigious environment and the power of courts to put the survival of a small, family-owned business at risk.